Proposals to cut Social Security under scrutiny

McClatchy NewspapersJuly 7, 2011 

WASHINGTON — Suddenly changes to Social Security may be on the table as President Barack Obama and congressional leaders negotiate a deal to raise the national debt ceiling and trim future budget deficits.

While Obama denies he'd do anything to harm the program, he's also said he'd like to strengthen it for the future. Several proposals from bipartisan commissions and think tanks have outlined how that might be done. Most involve changing the cost-of-living formula by which benefits rise to compensate for inflation. Others propose "means-testing" for the wealthy so they don't get as much. Those ideas are getting renewed attention now.

Whether you oppose or support cutting Social Security benefits as part of the pending debt-deficit deal, there's little disagreement that the beloved program in its current form is on an unsustainable economic path.

Social Security has enough cash to cover benefits for 25 more years, but it will become insolvent in 2036, according to its trustees. That's when program revenues will no longer keep pace with payments because of a smaller tax base and longer life expectancy.

The urgency of that truth created shockwaves last year when separate reports by two heralded budget panels offered similar sobering solutions for righting the program's finances.

In November 2010, the Bipartisan Policy Center's Debt Reduction Task Force, co-chaired by former Senate Budget Committee Chairman Pete Domenici, a Republican, and former White House Budget Director Alice Rivlin, a Democrat, called for increasing Social Security payroll taxes, curbing benefit growth for high earners and requiring the nation's 5.7 million state and local government workers to contribute payroll taxes for Social Security.

These and other changes would save the program more than $1.1 trillion between 2012 and 2030, according to their task force report, "Restoring America's Future."

Weeks later, President Obama's bipartisan National Commission on Fiscal Responsibility and Reform called for equally jarring program changes, such as adjusting the benefit-determination formula to slow future growth, increasing ages for early and full retirement and increasing the payroll tax to cover 90 percent of national wages instead of the current 83 percent.

Those recommendations are getting a second look as lawmakers and the White House negotiate to raise the debt limit by Aug 2 and trim projected budget deficits by up to $4 trillion over the next decade.

After media reports surfaced late Wednesday that Obama was offering Social Security cuts, White House spokesman Jay Carney backed away from those claims on Thursday.

"There is no news here — the president has always said that while Social Security is not a major driver of the deficit, we do need to strengthen the program, and the president said in the State of the Union Address that he wanted to work with both parties to do so in a balanced way that preserves the promise of the program and doesn't slash benefits," Carney said.

That statement didn't rule out possible changes in benefits to strengthen the program long term.

Domenici and Rivlin want to slowly increase the amount of wages subject to Social Security payroll taxes. Currently, those taxes are collected on wages up to a maximum of $106,800, or 83 percent of total national wages. Over the next 38 years, the task force would gradually increase the amount to cover 90 percent of all wages, earning the program $542 billion from 2012 to 2030.

Obama's commission would do the same thing, reaching the 90 percent mark by 2050. Their recommendation would increase the taxable maximum to $190,000 in 2020, up from $168,000 for that year under current law.

To better reflect inflation, the task force plan also would change the formula for annual cost-of-living adjustments for Social Security benefits. Their plan would slow the annual growth of benefits by an estimated three-tenths of a percentage point, resulting in $527 billion in savings from 2012 to 2030. The commission plan proposes a similar adjustment.

Under the task force plan, the highest-earning 25 percent of Social Security beneficiaries would also see smaller benefit growth beginning in 2023. These changes would save $5 billion by 2030 and $59 billion by 2040. The commission proposed similar changes.

Because Americans are living longer, Social Security spending will increase. Beginning in 2023, the task force calls for slightly reducing benefits for new beneficiaries, saving $240 billion by 2040.

The commission would deal with the longevity issue by adjusting retirement ages. They call for bumping the normal retirement age to 68 in roughly year 2050 and to 69 in 2075. The early retirement age would likewise increase to 63 near the year 2050 and 64 in 2075.

To increase the program's tax base, both reports call for requiring newly hired state and local government workers — who are not currently required to enroll in the system — to pay Social Security payroll taxes like the other 96 percent of American workers.

ON THE WEB

Report of the National Commission on Fiscal Responsibility and Reform

Report of the Bipartisan Policy Center's Debt Reduction Task Force

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